Fiat to take 35% stake in Chrysler

Fiat is to take a 35 per cent stake in Chrysler as part of a deal between the Italian and US automakers as they seek to weather the severe downturn in the automotive industry.

The two groups confirmed on Tuesday that they had signed a "non-binding term sheet to establish a global strategic alliance" that would see Turin-based Fiat acquire the stake in Chrysler in exchange for production and distribution assets.

"The alliance does not contemplate that Fiat would make a cash investment in Chrysler or commit to funding Chrysler in the future," the companies said in a joint statement.

Fiat shares climbed 4.2 per cent after the announcement.

The alliance comes as the global automotive industry braces for shrinkage because of the global economic crisis. Chrysler is the smallest of the big three US carmakers and received a $4bn emergency loan from the US Treasury earlier this month to avert a collapse of the company.